Is The U.S. Real Estate Market Going To Crash?

Written by Posted On Friday, 25 January 2019 09:21

The U.S. Could Be Headed For A Crash


  The housing sector is one of the largest and most stable contributors to the US GDP. With the economy slowly recovering and incomes steadily rising, the demand for housing has risen over the past few years. However, there seems to be cracks that threaten the stability of this important sector.  


What The Statistics Say


  According to the US Census Bureau and the Department of Housing and Urban Development, the number of new single-family houses sold reduced last month - from 666,000 in May to 631,000 in June. Sales of existing homes also reduced from 5.41 million in May to 5.38 million in June. This was a sharp contrast to the expected 0.5% increase.  


However, home prices and sales are not the only worrying statistic. The listing prices continue to rise steadily despite a slowdown in sales. Mortgage applications to buy new and existing houses have also been falling as borrowers stay away from expensive loans. Currently, the median selling price for a house is $276,900. Except in rare cases, nobody wants to sell a home for less than $250,000.  


You know that things are not great when one of the most affordable housing markets in America also experiences slow growth. In the quiet metropolitan area of Denver, Colorado, real estate developers witnessed a reduced appetite for acquiring new housing - home sales fell by 5.5% last month.   


What Is Causing These Changes?


  Although some experts may argue that the slowdown in sales is due to inventory, this explanation is questionable because housing supply increased from 4.1% in May to 4.3% in June. If inventory was to blame for low house sales, an increase in supply would surely result in improved sales, but that is not the case!  


Despite the market experiencing reduced demand for real estate purchases, developers have refused to lower prices. Many of them believe that the U.S. market statistics are strong and sales will eventually rise.  


In California, the trend is worrisome. The median selling price for a house is $523,000 in LA - according to Oct 10 - Jan 9 statistics. In the same market, the sales of houses priced below $500,000 has been decreasing by 21% every year. If the market was strong, the percentage of reduced sales would go down.   


Developers refuse to lower selling prices citing increase in construction costs as the main reason for the high pricing. Most of them claim that labor has become more expensive. Since they cannot pay their workers an amount lower than the minimum wage, they have to transfer the costs to the buyer so that they can make a profit.   


Another reason why the prices are really high is construction preference. At the moment, most contractors and building companies prefer to work on high end properties because the work pays more. As a result, the construction of starter homes - which are more affordable - has reduced.  


Another reason why lower-end or affordable homes have become scarce is the laxity by investors to sell them. After the housing crash of 2008, smart investors bought the low-end homes and converted them into lucrative rentals. Due to their high earning potential, many owners are reluctant to sell.  


Banks, on the other hand, follow the market trend. The reason why an average 30-year mortgage has a fixed rate of over 4.5% is because housing prices are increasing, and sales are reducing. Banks do not want to risk financing a mortgage that may make it difficult for them to recover their money in case of a default. Given the current market situation, a foreclosure could take months to find a buyer.  


The Millennial Debate


  Most developers are confident that millennials will prevent the housing market from cracking. This is because most young professionals are excited by the idea of owning a home. Unfortunately, the reality is far from the expectations.  


Last year, most millennials avoided real estate purchases due to the high selling prices and the limited supply. A young professional cannot buy a home if he or she cannot afford it. Most millennials are still struggling to get ahead in their careers, and it may be a while before the majority can afford homes at the current market price.    


The statistics prove that the US real estate market is showing signs of cracking, and thus, it is the best time to work with a local real estate agent to get you the best price when buying or selling a home. Nevertheless, it may be too soon to predict a bubble since home sales can either go up or down before the year ends. Only time will tell whether the crack will happen or not.

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Dean Cacioppo

Dean Cacioppo Credentials

Dean has worked as a real estate agent, real estate instructor and has years of experience working on the technology side for major Real Estate Brokers, Agents and MLS’s.  Dean has sat on the Board of Directors for multiple MLS’s including being elected to President.  Years of serving on a number of MLS Committees for multiple boards, served on the Strategic Planning Committee for Louisiana REALTORS and participated in many task forces and committees for the benefit of all Real Estate Agents in Louisiana.

Work in Real Estate Technology

Dean has provided live training on technology, direct IT and Technological Support to thousands of Real Estate Agents for over 16 years.  With years of being the go-to guy on technology strategy, training and support for Brokers and MLS’s across the country, you can now have direct access to Dean for your personal technology needs. 

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